Children invisible in theory and practice

28/02/2012 § 3 Comments

First, an aside. Am I the only one who saw the irony in yesterday’s announcement of the welfare reforms? The PM, raised by a solo mum in a state house, and the Minister of Social Development, former solo mum and beneficiary, announced cuts to programmes for solo mums and their children. This quote was particularly delicious:

“Despite the good intentions of the welfare system, it’s now creating a cycle of dependence and is actually out of step with today’s needs,” says Ms Bennett.

The problem is isolated to ‘now’ and ‘today’s needs’, which are presented as different from the needs when Ms Bennett herself (and Mr Key before her) were helped by the welfare system. Therefore, her success and his success cannot be taken as validation of the welfare system, as counter-evidence that the cycle of dependency is overblown. That was then, this is now.

Enough of that, on to the economics.

The reform is targeted at two groups:

  1. teens
  2. women with children.

The problem is that economic theory is unsatisfactory when it comes to thinking about children, which I discussed here. Because we cannot think about them well in theory, they are largely invisible when it comes to policy. The essential point is that economic actors are adult individuals whose childhoods are assumed. We don’t really say what those childhoods are or should be. In the language of economics, are they externalities? endowments? How do we think about their uneven allocation?

Let’s start with the teens. What is a teenager? It is a person who has just finished being a child and is now starting to be an adult. We can argue about how adult-like they are and what privileges and responsibilities they should have, but that is a question of degree. These people have just spend around 16 years as the responsibility of their parents, families, and communities, as well as schools, churches, and other institutions. If they aren’t ready to work or aren’t interested in study or training, whose fault is that? (Sondheim put it better, of course.) Put another way, what endowments should these economic actors have received from their childhoods?

The reforms have three major things for teens. The childcare assistance should be helpful. The incentives for work or study sound good, but why will they work when the previous 16 years or so haven’t? The ‘managed system of payments’ just sounds awful. It message is, ‘You haven’t learned to take care of yourself, so we’ll just do it for you. Here’s your pocket money’.

Moving on to the women-with-children reforms. There are two main thrusts. One is to put solo mums to work, part-time when children reach school age, full-time when the kids are 14. The other main thrust is contraception: thus, the provisions about having children while on the dole.

The focus of these reforms is clearly the mother. The government, and by extension, society, feels it has a claim on women who are receiving benefits. In return for the benefit, these women should be trying to work. The language of reform is about making sure that women aren’t ‘dependent’ and aren’t rorting the system. It is both paternalistic and suspicious.

The child is again invisible. Their experience is secondary or residual. But this is no surprise, because children exist in economic theory as the consumption goods of the parent (in wealthy countries; in poor countries they are investment goods). If we apply policy to the parent, then the quantity and quality of childhood adjusts.

Theory doesn’t help us decide what welfare policy is good for children. Childhood is not produced by society, but simply assumed to have happened to adults. Therefore, when we are making policy that affects children, we can make any assumption we choose.


We all do stupid things

08/02/2012 Comments Off on We all do stupid things

I’ve been looking at disease rates. Interesting project but depressing, because I’m looking at several terminal diseases as well as, well, depression. It was specifically with the HIV/AIDS statistics that I started thinking about responsibility, stupidity, probability, and safety nets.

You see, we all do stupid things. We all do things we shouldn’t, even though or perhaps because we know we shouldn’t. And some of us sail on through and laugh about it later. Others contract terminal diseases or fall off cliff faces or drown or otherwise bear a personal cost for that stupidity.

And that raises the question, what should be the size of the consequence?

I think it breaks down in two ways. First, there is the major role that luck plays. Secondly, there is the actual utility created by the fact that people are getting hurt and killed.

Let’s take luck: how much should the economy reward good luck or penalise bad luck? I think we have general agreement that the economy should reward good decisions. But, as I’ve pointed out, we all make bad decisions (‘do stupid things’). All the people who decided to do something stupid and got away with it haven’t paid a price. Instead, the cost has fallen on the few with the bad luck. In some ways, this could be analysed with a Harsanyi-Vickrey framework: we don’t know a priori whether we’ll have bad luck, so we might opt for a system that insures us.

The problem looks a bit like a tournament theory problem, but inverted. There are lots of entrants, but only a few bear the costs. We would therefore expect a different result if we compared it to a situation in which each entrant had to pay the expected value of the marginal disutility up front.

Issue number two: people who do dangerous things and live to tell the tale get some extra utility from the danger. Death-defying acts by definition require some positive probablity of death. Otherwise, they are merely acts. The extra utility is created by the people who are injured, maimed, and killed.

So, is there some compensation due? Should the lucky ones pay the unfortunate ones for making their lives more meaningful? Taking the logic even further, perhaps we aren’t producing the socially optimal amount of dangerous past-times because of market failure caused by the public good aspect. Perhaps.

There are several secondary questions. Improving the safety net reduces the individual cost of such decisions. This creates moral hazard, which increases the social cost. There are also institutional questions — how to transfer payments from the lucky to the unfortunate. That is obviously one reason for safety nets in the first place. Whether they could be improved is a reasonable question.

I guess my point is that when we are arguing about social safety nets, we are arguing about responsibility. We are arguing about how much people should individually bear the costs of poor decisions. And then, we have to be honest with ourselves: we all do stupid things. Only sometimes do we really pay the consequences. As my mother would say, ‘There but for the grace of God go I.’

Welfare reform: $20 bills on the footpath

02/11/2011 § 2 Comments

I could spend all day discussing welfare reform. Unemployment, poverty, and illness are very complicated. I spent a year working in a welfare-to-work programme in California. Each person had a mess of issues that seemed to overdetermine their poverty and unemployment. It was never as simple as just finding a job.

What makes the discussion even more difficult is that people’s responses come from their core values. That’s the whole debate over the ‘deserving poor’ — what should people do for themselves, and what should the consequences be? The debate over how to support children is similar. How much are children the responsibility of their parents, and how much does society have a separate stake in their development?

As I said, I could be here all day. So, I just want to make three simple observations.

First, Paula Bennett’s press release from yesterday had this quote as paragraph two:

“It’s not socially or financially sustainable to continue to spend eight billion dollars a year to pay benefits to 12 per cent of working age New Zealanders.”

Why not? It’s an interesting assertion, but I’m sure I could develop a macro model that sustainably allocates 4% of GDP to supporting unemployed and sick people. The assertion is not a solid basis for policy.

Secondly, we should think about welfare systemically. For example, we could spend more on child health and education if we wanted to, but we have decided that it isn’t worth the investment. As a result, some children are not as healthy and educated as they might be. They become adults who aren’t as employable as they might be. Unemployment benefits are, in part, the price we pay for spending less on health and education. This may be an efficient outcome: it may be cheaper to pay unemployment benefits for x% of the working-age population than to increase other spending by y%. But we have made choices and we need to live with the consequences. And yes, I am aware of the irony of saying that in the context of welfare reform.

Thirdly, the policy screams $20 bills lying on the footpath. They plan to spend $520 million ($130 p.a. times four years) to reap $1,000 million over four years. They expect to double their money from this initative. So…why hasn’t someone already picked up all this free money lying around?

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